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Pfizer and Allergan Reach $150 Billion Merger Deal

Pfizer's corporate headquarters in New York City.Credit
Andrew Kelly/Reuters

Pfizer has clinched a blockbuster merger with a fellow drug maker, one worth more than $150 billion, that can best be described in superlatives.

When it is announced — most likely on Monday, people briefed on the matter said — the deal to buy Allergan, the maker of Botox, would be one of the biggest ever takeovers in the health care industry. And it would be the largest acquisition yet in a banner year for mergers.

Perhaps most important, it would be the biggest transaction aimed at helping an American company shed its United States corporate citizenship in an effort to lower its tax bill, in this case by billions of dollars. And it could become a flash point as the presidential race heats up.

A deal would come as the Obama administration is trying to crack down on these kinds of deals, known on Wall Street and in Washington as corporate inversions. Last week, the Treasury Department and the Internal Revenue Service announced new rules meant to further clamp down on the benefits of such mergers. The government has already lost billions of dollars in corporate tax revenue from inversions, particularly over the last couple of years.

New rules introduced earlier this year deterred some companies determined to pursue inversions, including AbbVie, a drug maker that called off its planned $54 billion takeover of an Irish counterpart, Shire. Still, Treasury officials said as recently as last week that only Congress can halt inversions.

Pfizer and Allergan are taking steps to sidestep the current rules altogether. Though Pfizer is significantly bigger, with a market value of $199 billion to Allergan’s $123 billion, it is Allergan that would technically be the buyer, according to the people briefed on the matter.

Because Allergan already has its headquarters in Dublin — even though the bulk of its operations are based in Parsippany, N.J. — the planned transaction could avoid the Treasury rules, which apply to American companies that buy foreign companies.

But in most respects, Pfizer would lead the combined company, which would surpass Johnson & Johnson as the biggest drug maker by revenue, with more than $60 billion in sales. Its product portfolio would run from Viagra, Celebrex and pneumonia drugs to Botox and the cosmetic treatment Juvéderm. Analysts do not expect the merger to have much effect on the prices of the companies’ drugs.

Related Tax Inversion Coverage

Pfizer’s chief executive, Ian Read, would hold on to that role at the combined company, these people said. His counterpart at Allergan, Brent Saunders, is expected to take a top deputy role and a board seat.

The boards of both Pfizer and Allergan voted on Sunday to approve the transaction, one of the people briefed on the matter said. News of the votes was reported earlier by The Wall Street Journal.

Representatives for Pfizer, Allergan and the Treasury Department declined to comment.

Adopting Allergan’s home base of Ireland would yield significant savings for Pfizer, one of the oldest drug makers in the United States. Its history runs from producing painkillers during the Civil War to penicillin in World War II. Pfizer’s tax rate last year was roughly 26.5 percent and is expected to be about 25 percent this year.

Its prospective merger partner, by contrast, reported a tax rate of just 4.8 percent for 2014, though its rate this year is about 15 percent.

President Obama last year declared that such moves were “unpatriotic.” But Mr. Read has long argued that an inversion is an important step in keeping the company competitive with foreign rivals based in lower-tax countries. Under the current rules, Pfizer must pay American corporate taxes on the billions of dollars in earnings from international operations if it ever tries to bring the money back to the United States. (The company kept $74 billion in earnings offshore last year to avoid that bill.)

But Mr. Read, an accountant by training, has pressed ahead with his dream of a corporate inversion. Otherwise, he told The Wall Street Journal last month, Pfizer is fighting “with one hand tied behind our back.”

It was unclear whether the Obama administration would announce additional rules that would stymie the merger.

Record Year of Deal-Making

Giant impending deals announced this year include:

Under the terms of the proposed deal, Allergan shareholders would receive 11.3 Pfizer shares for each of their holdings, the people briefed on the matter said. That is worth about $363.63 a share, or 16 percent higher than Allergan’s closing price on Friday.

The transaction would also include a cash component, though one of the people described it as less than 10 percent of the deal’s overall value.

Pfizer shareholders would still own the majority of the combined business.

At more than $150 billion, the takeover would be the biggest in what has been a stellar year for deal-making, one that has astonished even veteran Wall Street financiers. Some $4 trillion in transactions had been announced as of Nov. 19, and this year is on pace to shatter the previous record of roughly $4.3 trillion set in 2007.

Yet in some ways, a takeover of Allergan may eventually be followed by Pfizer splitting itself up — another trend that has taken hold on Wall Street in recent years. The bigger drug maker has weighed whether to split into two companies: one dedicated to higher-growth, brand name treatments and one focused on slower-growing mature drugs that face pressure from generic counterparts.

Mr. Saunders of Allergan would be in line to take over one of those companies if Pfizer ultimately chose to break up, the people briefed on the matter said.

A version of this article appears in print on November 23, 2015, on Page A1 of the New York edition with the headline: Pfizer Reaches Takeover Deal With Allergan . Order Reprints|Today's Paper|Subscribe